What’s Best for Your Business? Credit or Debit Cards? 7 Important Considerations.

If your only tool is a hammer, you see every problem as a nail. That insight explains why credit and prepaid debit card marketers will each try to show you how their specific products can meet all your spending needs. At PEX, though, we realize that the reality is more nuanced.

Each product can have a place in your business. You can leverage both to manage your business and achieve your goals. Here are seven use cases to help you decide how to leverage each kind of card.

1.  How steady is your cash flow?

Some businesses can rely on predictable cash flow. Payments come at about the same time every cycle. They can direct the cash to specific budgets and uses — before a penny is spent. In these cases, prepaid debit cards make sense. Some prepaid debit cards, like ours, have built-in controls that let you commit funds to their specific purposes and limit staff spending to those purposes.

Other businesses, however, have uneven cash flows. Money comes in at irregular intervals, and they may need to spend money before funds get to their account. Some businesses can use cash reserves to cover prepaid debit cards until the funds come in. In these cases, you may benefit from the float that a credit or charge card may give you.

Charge cards that come due at the end of the billing cycle can give you that float while letting you avoid interest or late fees.

2. Who are you giving cards to?

The rules for distributing credit/charge and debit cards are poles apart. You can only give a credit card to someone who’s able or willing to undergo a credit check. Prepaid debit cards, on the other hand, have no such restrictions. You can give a card to anyone. No credit check is needed as the PEX Visa® Commercial Card is not a credit card,.

This means you can quickly and easily distribute prepaid debit cards to assistants, volunteers, messengers, gig workers — anyone who might need to spend money on your behalf. The cards are worthless until you authorize and fund them. This gives you the flexibility to send any cardholder to buy anything you need when you need it.

Credit and charge cards, on the other hand, are for responsible, more senior employees who spend frequently and need a good deal of flexibility. However, you may not be able to quickly raise their credit limit for one-time needs or emergencies. Before giving credit or charge cards to employees, be sure to consider all contingencies in deciding their credit limit.

3. Do you dedicate funds to grants or representative payee programs?

Any time you receive a block of funds that you can only use for specific programs or beneficiaries, a prepaid debit card program (like ours) stands out. You can direct funds to particular programs or payees and limit spending to authorized purchases for those programs.

Better still, built-in receipt capture, reporting, and accounting features give you an auditable paper trail. That’s why not-for-profits often use prepaid debit cards for nearly all spending on grant and beneficiary programs. They can readily show that they used dedicated funds according to program rules.

4. How do you plan to use the card?

Though prepaid and credit/charge cards look very similar, their account numbers tell merchants what kind of card you’re using. Because prepaid cards generally have short shelf lives and limited funding, many merchants will reject them for partial payments, recurring payments, or automatically renewed subscriptions. Car rental companies, too, tend to reject prepaid cards. They accept credit and charge cards. PEX Visa^® Commercial Cards are accepted anywhere Visa commercial cards are accepted.

On the other hand, many merchants may subject charge and credit card purchases to a surcharge. According to Visa rules, these surcharges can add up to 3% to a purchase price. They’re especially common at some very small businesses and government websites. However, Visa does not allow merchants to add this surcharge to prepaid or debit cards. In situations where these surcharges are common, your business may want to use prepaid cards.

5. Do you want to earn rewards for your purchases?

Credit cards and a few charge card programs may offer rewards, typically worth .75% to 1% of qualifying purchases. This can add up to significant savings for your business. However, these programs are not available with prepaid cards.

6. Do you want to avoid interest charges?

Prepaid debit cards prevent your employees from spending money you don’t have. There are no late fees or interest charges. Charge cards, because they’re due in full at the end of the billing cycle, also let you avoid late fees and interest charges.

7. Can your card help you enforce budgetary discipline?

Some business prepaid and charge cards allow you to set rules regarding when, where, and how much an employee can spend. These rules can get very granular, right down to the day, time, transaction amount, merchant category, and more.

You have better control over spending, so employees generally spend less. And in the event of an emergency or special situation, you can approve the transaction and fund the card in a matter of seconds.

Charge cards, prepaid cards, or both. PEX makes it work for you.

In the next few weeks, PEX has now introduced PEX Visa^® Commercial Cards with a new PEX Credit Expense feature. Spending on these new cards will earn 1% cash back rewards on qualifying purchases.

Because PEX Credit Expense runs on the PEX Platform, you will have the flexibility to distribute cards, set credit limits, and define spending rules as you see fit. PEX Credit Expense will also save you a lot of time on the back end. Standard features will include mobile receipt capture, real-time reporting, automated allocations and reconciliations, and accounting software integration.

Better still, this isn’t an either/or proposition. You will be able to issue charge cards and prepaid debit cards from the same account and manage them from a single console. So you can choose the best card for each use case without switching accounts or dealing with multiple vendors.

To learn more about our platform and how PEX Credit Expense can work for your organization, click here.